Renting an office will be one of your biggest operating expenses as a business. You’re likely asking yourself — what overall office space cost can you expect to incur?
Well, that depends largely on the city and the size of the space. In this post, we’ll cover the few basics on the relationship between square footage and price, and go over the various costs you can expect beyond the price per square foot.
Office Space Rental Rates
When you search for office space online, you will see figures like “$52/SQFT.” That means rent is fifty-two dollars per square foot per year (or $4.33/SQFT per month). If you know the square footage of the office, you can estimate your annual and monthly rent. (The exception is on coworking platforms or on sites like PivotDesk, a shared space marketplace that connects those with extra space in their offices with those looking to enjoy the flexibility of shared space, where figures will be listed in terms of price per person or price per month.)
For the purposes of budgeting early on in the process, you don’t necessarily need to know the exact size of the office space you need. Consider that 100-150 square feet per person is the recommended average amount of space to allocate to each employee. A quick count of your employees can help you estimate a rent number that you can then start budgeting against. (To make this easy, we’ve created a square footage calculator that will help you get an accurate estimate of how much space your company needs.)
You should know, however, that this basic rent calculation is just that: a rent calculation. Office space comes with additional expenses factored in the lease. And even the rent and how it’s defined will need clarification.
The cost of office space can vary significantly within a city. Factors in the cost of an office include building class, building amenities (doorman, lobby, etc), and neighborhood.
Average Commercial Rent per Square Foot
As we mentioned, the affordability of office space is largely contingent on your location. To give you a sense of how much prices per square foot can deviate based on where you are, here’s how much office space costs in major metropolitan areas across the United States (as of 2019):
|Market||Average $/sq. ft.*|
Note: Los Angeles prices per square foot are listed in terms of $/sq. ft. per month.
And even within cities, the office space cost can largely vary. Take, for example, the difference in how much $5,000 a month can get you per NYC submarket:
It’s clear that there’s no universal standard for how much office space should cost. You should understand the price averages in the area you’re renting to make sure that you’re getting a competitive price per square foot.
Base Rent and Other Office Space Costs
Base rent is the amount of rent due to a landlord before other expenses, like utilities and maintenance fees. Your lease will define the additional expenses you’re responsible for.
|Lease Type||Expenses||Use Case|
|Gross Lease||You pay rent. The landlord covers everything else up front but may recoup his cost with what is called a “Load Factor” in the rent.||Any commercial space|
|Triple Net Lease||You pay rent + taxes, insurance and maintenance fees||Any commercial space|
|Double Net Lease||You pay rent + taxes and insurance||Any commercial space|
|Net Lease||You pay rent + some degree of taxes, insurance and maintenance fees||Any commercial space|
|Percentage Lease||You pay rent + a percentage of your monthly sales.||Retail space|
Furthermore, landlords stand to increase the rent for every year in the lease term (called “rent steps”). Some landlords will stipulate a percentage increase for every year, others prefer a fixed amount. Your broker can help you negotiate these rent increases.
Usable Square Footage
Usable square footage (USF) refers to the office space leased for your exclusive use. In many cases, an office rental’s usable square footage isn’t advertised. And if it was, you’d probably be tempted to measure it (with a tape measure) anyway.
However, it’s important to note that the actual square footage measurement of a rental is ultimately less important than whether or not it can comfortably accommodate your needs.
Rentable Square Footage
“Rentable” square footage (RSF) is a slightly different matter. In addition to your exclusive office space, rentable square footage includes all the building’s common areas, like elevators, lobbies, stairways and vestibules. Technically, the landlord is leasing these building areas to you as well.
The percent difference between the usable square footage and the rentable square footage is called “Loss Factor.”
Essentially, loss factor tells you how much of a markup there is on your total monthly or annual rent. Industry standards for Loss Factor don’t currently exist for commercial Manhattan real estate, but a Loss Factor over 40 percent would be worth questioning.
Office Space Build-Outs
Further down the line, once you’ve found a space you like, you will need to transform the space into a functioning office. Landlords will often contribute to the renovations with what is called a Tenant Improvement Allowance (TIA), a sum of money to help cover renovation costs. Your broker can help you negotiate how much you’ll get, and how the landlord will allocate the sum.
Talk To a Broker
Throughout the office leasing process, a broker can help you manage costs and find savings wherever possible. It’s one of the best reasons to work with one.
The best part about working with a tenant broker is that it’s free to you. Tenant brokers collect commissions from landlords, so you won’t pay anything for their expertise and guidance through the office space leasing process.
At SquareFoot, our brokers are equipped with proprietary data and technology to make the most painful parts of finding office space faster, easier, and more transparent. If you’re ready to find the right office for your company, get started with us today so we can learn more about your needs and budget.
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|New York||Houston||Los Angeles||Dallas||Washington, D.C.|